Mary: I’m Mary Walden with economist MW welcoming you to the economic perspective. Today’s program looks at tax cuts and economic growth. Mike, let the battle begin. I mean the battle over the President’s tax plan. The Trump Administration has made a proposal to significantly lower tax rates while at the same time curtailing some deductions and exemptions. One of their goals is to spur economic growth and job creation. Will it work?

Mike: Summary Answer

That’s the big question

Although there are differences, most economists are agreed on two things

First, at the most, tax rate cuts are associated with modest increases in economic growth, much of which may be temporary

Over time, economic growth appears to proceed regardless of the level of tax rates

One reason is the second source of agreement – that often when tax rates are changed, so too are deductions and exemptions, and credits

So if rates go up, write-offs increase and temper the rate rise

If rates go down, write-offs are decreased – which lessens to benefit of the rate drop